CANADA'S LEADING INFORMATION SOURCE FOR THE METALWORKING INDUSTRY

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CANADA'S LEADING INFORMATION SOURCE FOR THE METALWORKING INDUSTRY

CANADA'S LEADING INFORMATION SOURCE FOR THE METALWORKING INDUSTRY

How can we best reinvigorate manufacturing in Ontario?

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Ontario is the heart of Canadian manufacturing, representing close to 45% of the country’s manufacturing output.

Ontario’s manufacturing GDP peaked 20 years ago, however and Canada’s trade deficit in manufacturing goods hit a record high of $197.8 billion in 2022. As of July 2023, US private manufacturing construction was up 76.5% compared to the previous year, spurred by the US Inflation Reduction Act and the subsidies it contains. That’s a significant increase compared to Canada, where investment at factories was up a more moderate 35.6%.

What policies are needed to reinvigorate manufacturing in Canada, and specifically in Ontario, the engine of the country’s manufacturing, is the subject of a new report published by Canadian Manufacturers & Exporters (CME), entitled Manufacturing Ontario’s Future: Leveraging an Advanced Manufacturing Strategy for Growth and Prosperity.

Although acknowledging that after 20 years of slow manufacturing growth, Ontario is “unmistakably on the path to restore a welcoming climate for investment,” CME points out “there is a lot of lost time to make up for.”

“For Ontario to experience manufacturing growth that is sustained and broadly based, it must persist in adopting policies that create a supportive environment for businesses. This involves providing competitive investment incentives to foster growth that is felt in our communities, continuously upskilling our workforce, and lowering costs while we lower carbon emissions,” the CME report states.

The report includes specific recommendations on how to get there. www.shopmetaltech.com will outline CME’s insights and recommendations in three separate instalments, closely examining each of the three pillars of investing in Ontario-made growth, expanding and upskilling the manufacturing workforce, and lowering carbon while lowering costs.

We begin with the first pillar: Investing in Ontario-made growth.

COMPETITIVE INVESTMENT INCENTIVES

Over the next 10 years, the Ontario government intends to build $185 billion in capital – roads, transit, and other infrastructure. According to the IESO, the energy grid must be doubled over the next few decades, at an estimated cost of $400 billion. This adds to the more than $29 billion in goods and services the Ontario government already buys every year, CME’s report points out.

“There has never been such an aggressive building agenda in our province. Yet, we hear consistently of missed opportunities to leverage this purchasing power to grow our economy, even when explicit allowances are embedded in trade agreements and direct competitors maintain significant protectionist measures,” CME states.

Aside from the Buy American/Buy America legislation, it cites the example of mass transit projects, where the Canada-European Union Comprehensive Trade Agreement (CETA) has had a 25% domestic content allowance for years, but it has not been consistently used, resulting in large contracts like the Ontario Line generating prosperity for other manufacturing jurisdictions.

CME argues that to properly capture the opportunity of the global movement toward industrial re-shoring, a more strategic and reciprocal strategy is needed.

CME says the Ontario Made Manufacturing Investment Tax Credit (OMMITC), announced in Budget 2023, has the potential to deliver “significant benefits to a wide range of local manufacturing businesses” by funding 10% of new machinery and real estate costs (up to a maximum of $2 million). It adds that adjustments to eligibility would improve the measure to make sure it can capture hardware, software, and other tools essential for the transition to advanced manufacturing. For one thing OMMITC eligibility should be expanded to include tools such as moulds and dies, as well as computer hardware and software, CME says in its report.

And for maximum impact on investment, eligibility could also be expanded to help more companies who have a strong local footprint, but some level of foreign ownership, using the same criteria established to define an Ontario business under procurement policies.

The CME report provides three specific solutions:

-Extend the life of the tax credit to 10 years to match the life of the U.S. IRA and provide greater certainty for businesses to invest for the long-term.

-Modify eligibility to include tools such as moulds and dies (Class 12 under capital allowance rules), as well as computer hardware and software (Class 10) to support advanced manufacturing.

– Extend application to more companies with a strong local footprint by adopting the definition of an Ontario business under the Building Ontario Businesses Initiative Act for the purpose of applying the credit. This would mean manufacturers with a headquarter, a head office in Ontario, or more than 250 employees in the province would qualify.

RAISING AMBITION TO BUY LOCAL

The government of Ontario has recognized the need to use procurement for economic development in setting up the Building Ontario Businesses Initiative Act, CME’s report points out. But the report counters that other trading partners have a longer history in providing a leg up to their manufacturers, especially when it comes to rewarding investments to lower the carbon footprint of manufacturing. Ontario has some catching up to do.

For example, in the U.S, the Environmental Protection Agency has recently set aside direct funding for companies developing Environmental Product Declarations (or EPDs). In their most basic idea, EPDs are a bit like the nutritional labels mandated for food products decades ago. They tell a purchaser, in a standardized format, how much embodied carbon is in each product, or industrial operation.

“Any supports provided by the Ontario government as part of the Building Ontario Businesses Initiative should be part of a broader strategy to preserve and reinforce the position of the province in the integrated North American economy,” CME states and offers three solutions to move in this direction:

-Maximize the use of provisions in existing trade agreements to ensure our buildings, transmission lines, hospital equipment, energy generation assets and other goods bought by the Government of Ontario are made with Ontario or Canadian materials, components, technology, and labour.

-Introduce a grant offsetting the costs for Ontario manufacturers who retain third parties (including not-for-profits) to conduct carbon assessments. This will support exports to likeminded countries and provide a natural advantage to domestic manufacturers in procurement processes, allowing us to use our low carbon advantage as a tool to grow domestic market share.

-Link CME’s Ontario Made program, and the database readily accessible at www. SupportOntarioMade.ca to inform product specifications with what we already make here at home.

SET UP EMPLOYMENT LANDS FOR FUTURE GROWTH

Ontario’s location in the center of North America’s industrial heartland is key to the competitive advantage of its manufacturing sector, especially as global instability complicates access to the US market for many advanced economies, CME states but argues that this advantage is eroded when industrial properties do not benefit from a stable and supportive environment where they can grow.

Despite slight improvements in the availability of industrial real estate, with the vacancy rate in Southwest Ontario climbing to 2% in Q4 of 2023 due to robust construction numbers, uncertainty remains in several areas due to encroachments and speculation driven by a lack of long-term protection for employment lands, CME’s report points out. This was worsened by the removal of Provincially Significant Employment Zones (PSEZs) in Ontario’s 2023 update of its Provincial Planning Statement, its adds.

“Without formal protection for industrial lands and buffer zones enshrined in land planning policy, job creators are left to wonder which operationally sensitive piece of land will be affected next by a conversion request or resident complaints about noise, smells, or night operations,” CME’s report states.

It provides the following solution:

-Establish an investment-friendly industrial land policy restoring protection for strategic employment zones and proper buffer zones to provide operational certainty over the long term. This policy should be informed by input from the business community, CME advises.

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